India’s forex, money markets have doubled in last 4 years: RBI Governor

India’s financial markets have developed into a dynamic and resilient force to fuel economic growth with an almost doubling of the foreign exchange market from $32 billion in 2020 to $60 billion in 2024 and the average daily volumes in the overnight money markets surging from about Rs 3 lakh crore to over Rs 5.4 lakh in this four-year period, according to RBI Governor Sanjay Malhotra.

There has also been a 40 per cent surge in average daily volumes in the government securities (G-secs) markets to Rs 66,000 crore over the same period.

Addressing the 24th FIMMDA-PDAI annual conference in Bali this weekend, Malhotra said the levels of transparency in Indian markets are at par with the best in the world.

“With recent regulatory reforms, we have seen greater product and participant diversity, and the onshore and offshore markets have become tightly integrated,” he pointed out.

Malhotra said all the financial market segments of the country, including Forex, G-sec, and Money Markets, have largely remained stable. While the Rupee came under a bit of pressure a few months ago, it has fared better thereafter and regained some lost ground.

The foreign exchange markets are reasonably liquid with narrow bid-ask spreads. There is growing transparency in this market. All FX derivatives are reported to the Trade Repository, and reporting of cash and spot transactions has commenced. A bulk of FX spot transactions are traded on electronic trading platforms (ETPs). Authorised trading platforms are also available for forward transactions, but there appears to be a preference for such trades to take place bilaterally. Trading on ETPs enhances transparency and market efficiency. We would like to see an increasing share of transactions done on ETPs, he said..

Malhotra further stated that fair treatment of customers and transparency in forex pricing for the smaller and less sophisticated customers continue to engage the RBI’s attention.

“Much more can be and needs to be done here. Divergence in pricing in FX markets for the small and large customers is far wider than what can be justified by operational considerations. FX-Retail, a transparent platform for undertaking FX transactions, has witnessed a lukewarm response, and our feedback is that this is largely due to the reluctance of banks to offer the platform to their customers,” The RBI governor said.

He highlighted that there are regulations in place to ensure transparency in pricing for retail customers, including a mandate for disclosing the mid-market or interbank rate to customers. As an industry, there is a need for market-makers to introspect and assess in what ways they can effectively deliver on these regulatory and fiduciary mandates, he added.

Malhotra further stated that the RBI has recently announced that access to FX Retail will also be provided through the Bharat Connect platform. In the first phase, a pilot to facilitate the purchase of US dollars by individuals is planned. Subsequently, its scope will be expanded based on the experience gained.

He urged all the financial market participants, including Authorised Dealers, to extend their full cooperation in ensuring that the pilot is implemented smoothly and successfully.

He red-flagged the use of banking channels for activities on unauthorised FX trading platforms. “This calls for greater vigilance and stronger efforts by banks to create awareness among their customers about the perils of using such platforms,” the RBI Governor said.